What To Do In The Most Uncertain Market In Years | Prof G Markets

Trump's Iran policy communications create market volatility through a pattern of contradictory statements: first suggesting de-escalation ('the war is very complete'), then escalation ('we don't know their leaders'), then claiming productive talks, which Iran denies, creating whipsawed investor reactions.

“We had back on March 9th when Trump said, 'I think the war is very complete.' And then the markets went up. And then he a few week a few days later he said more negative things. He said, 'We don't even know their leaders. We don't know who we're dealing with.' Markets went down. Then he says that we're having very good and productive talks with Iran. Markets go up. Then Iran says, 'No, those talks didn't happen.' Markets go down.”

The CIA and Trump administration fundamentally disagree on Iran threat assessment: the CIA assessed Iran poses no imminent threat and its nuclear capabilities have been eviscerated, while Trump claims Iran poses an imminent threat with rising nuclear capabilities that must be neutralized.

“One thing you didn't mention which they seems to not see eye to eye on and they had no explanation for, the CIA said that Iran was not an imminent threat and they said that their nuclear capabilities had been eviscerated. That was their statement. That was their position. And then Trump comes out and says, 'Why are we doing this? Because they're an imminent threat and because their nuclear capabilities are rising and because we need to neutralize it.' That was a fundamental disagreement between the CIA and Trump, which leaves us with basically zero understanding of what the hell is even going on here.”

The current market environment is characterized by extreme uncertainty not because of known facts but because of the magnitude of unanswered questions with massive implications (Iran escalation, AI economic reshaping) for which no clear answers exist.

“It feels like one of the most uncertain market environments in years right now. Not because of what we know, but because of how much we don't know. There are a number of huge open-ended questions with massive implications from what happens next in Iran to how AI ultimately reshapes the economy.”

Interest rate expectations have inverted from a consensus view of rate cuts occurring to market pricing for zero rate cuts in 2025 and material probability of rate hikes within 12 months, driven by potential inflationary effects of Iran geopolitical escalation.

“People thought that we were going into a rate-cutting cycle. Now, it appears that we're starting to price things a little differently. People think we won't have any rate cuts this year. And in fact, the chances of a rate hike over the next 12 months have exploded.”

Private credit industry may face a meltdown from over-issuance of poor-quality loans, particularly in software, creating a potential $2 trillion credit crunch, though this crisis is being overshadowed by simultaneous Iran and AI uncertainties.

“Another one would be this potential looming crisis in private credit. Are we going to have a private credit meltdown? Has the industry issued too many bad loans, especially in the software industry, and are we about to experience a credit crunch in what is now a $2 trillion industry?”

America has become a 'Giffen good' in the global economy: as global insecurity increases and other developed nations face crises, capital flows disproportionately into U.S. assets as a flight-to-safety mechanism, making America economically resilient while isolated from global economic well-being, similar to how Irish poor consumed more potatoes when prices rose because cheaper staples disappeared.

“And the same thing is happening on a larger level with America. And that is as we break we are actually removed from the global economy. In the short run, I believe in the long run we'll pay a huge price. But if you look at the global markets and some of our allies, their stock markets are down more than ours. Because we are blessed with energy independence, food independence. And when there's a flight to safety, America is sort of a Giffen good.”

Trump is using the U.S. military, military personnel lives, geopolitical relationships with allies, and market volatility as tools to facilitate insider trading, which the speaker characterizes as 'the greatest financial scandal in history,' with evidence of strategic information leakage before market-moving Iran announcements.

“I think that the president has no fidelity to the lives of servicemen and servicewomen, to the markets more broadly. I think that we're in the midst of what will be seen as the greatest financial scandal in history, where we're using the US military, our geopolitical currency globally, uh our allies, relationships with our allies, all as a means of creating uh volatility such that the president can engage in insider trading.”

Autocrats who face legal constraints (unlike Putin in Russia) turn to carving up state assets and distributing them to loyal allies as a mechanism for consolidating power and ensuring obedience, as an alternative to extrajudicial punishment.

“I think a good autocrat not only punishes his enemies, which is more difficult with a court system in the US. You can do it to a certain extent. You can put you can put Dario Modi's firm on a supply chain risk list and make it very difficult for them to do business, but you can't have them thrown out of a window like Putin does in Russia with people he doesn't like. So, what he turns to is more what Putin does on the upside, and that is he carves up US assets and gives them to um gives them to people loyal to him, inspiring a great deal of loyalty.”

Markets react violently to random stimuli and small signals about AI impact (research papers, viral Twitter posts) causing massive valuation shifts (e.g., $300 billion in market value erased overnight) because investors have no coherent model and are instead following heuristics like 'a credible person posted this, so maybe I should sell.'

“the markets are just responding to little stimuli that they see every now and then, such as Citrine Research, some guy on Twitter posts a viral AI blog post, and then suddenly $300 billion in market value is erased overnight because investors go, 'I I don't know, may maybe he's right. Maybe we should sell.'”

Trump's Iran policy will have multi-decade impacts across energy markets, global geopolitics, and the broader economy, potentially moving trillions of dollars and affecting generations, yet investors must make decisions with no ability to model the outcomes.

“And the trouble is he's having influence over some of the most important, significant market moving events in history. I mean, how he responds to this war, how his thought process and strategy materializes will literally move trillions of dollars. It will reverberate not just for years, but for decades. It could completely roil the oil markets for a very, very long time.”

Investors cannot construct coherent investment theses in the current environment because the core task of investing—building forecasts of future states and positioning accordingly—requires predictability, but Trump's erratic behavior makes prediction impossible even for his own CIA and staff.

“the job of the investor is to try to understand what the future might generally look like and then build a thesis, build an investment thesis around that understanding of the future. The trouble is that there is just no way to predict it at this point because this guy is so erratic, not even his aides, not even his CIA can predict what he's going to do or say.”

Unlike previous market uncertainties that isolated to specific industries or sectors, the current set of questions (Iran, AI, private credit, rates) affect literally everything and everyone's business and lives, compounding systemic uncertainty.

“And unlike previous questions where it's maybe been limited to one or two industries, all of these questions affect literally everything, everyone's lives, everyone's business, which is why I believe it's an interesting moment right now.”

The appropriate investor response in an environment of extreme, system-wide, modeling-resistant uncertainty is itself unclear, representing a fundamental challenge to portfolio construction and risk management.

“Uncertainty is extremely high. Uh tail risks are all over the place. And I think that leaves us with an important question, like, what are you supposed to do in that environment? I'm not entirely sure yet, but that is certainly the question that I'm starting to approach.”

Trump's policy positions on Iran lack any consistent rule, strategy, or framework that investors can use to predict outcomes, contradicting the previous assumption (TACO) that markets would discipline him into consistency by rewarding coherent policy and punishing incoherence.

“Um I mean, it's clear that there's no way to understand what Trump's agenda actually is. Like, there's no rule, there's no strategy, there's no framework you can really use. We used to think it was taco. Like, Trump does something and then the markets tell him off and then he stops doing it, but we've seen a lot of moments where the talk of actually hasn't materialized. And so it's starting to get to the point where that that there might actually be no way to predict or explain what he's going to do, including with this speech.”

The intersection of Iran policy volatility, AI impact uncertainty, private credit stability questions, and interest rate direction creates a situation where 'no one knows what the hell is going on' and investors have zero conviction in their positions because there is no way to game out the future.

“Which means I mean, this is all to say, no one knows what the is going on right now. I mean, no one has any conviction in their positions because you can't have any conviction. There's no way to really game out the future.”